Managing indirect taxes in rapid-growth markets ...€¦ · Introduction Since 2008, many developed economies `Yn] k]]f ÖYl gj f]_Ylan] _jgol` jYl]k& Multinational businesses have

Managing indirect taxes in rapid-growth marketsExecutive summary

Introduction

Since 2008, many developed economies

Multinational businesses have responded

featured in this report currently account

have selected them based on three criteria:

• potential

• Size of the economy and population

•

transformation of their business models as

ey.com/rapidgrowth

Mexico

Colombia

Chile

Figure 1. EY’s 25 rapid-growth marketsWelcome to the executive summary of Managing indirect taxes in rapid-growth marketssketch the issues and opportunities that multinational companies face in emerging markets, or as we refer to them here, RGMs. By interviewing clients, investment agencies and the EY Indirect Tax professionals who live and work in RGMs, we are able to highlight the everyday challenges that businesses are tackling. We explain here what lessons they have learned and the “leading practices” they have developed. To read the fascinating case studies and commentary from the tax professionals we interviewed, please consult the full-length study at ey.com/rapidgrowth.

side, there are customs duties, excise taxes and taxes on

Brazil

Ghana

Qatar

Czech Republic

Russia

China

India

South Korea

Malaysia

Indonesia

Saudi

As the balance of world trade shifts to RGMs, the nature of taxation also shifts 2

Five global indirect tax trends: how do they play out in the RGMs? 3

Indirect tax issues and opportunities in rapid-growth markets 4Trading with rapid-growth markets 4Investing in rapid-growth markets 5Operating in rapid-growth markets 7

Effective management 9

Seizing opportunities — avoiding pitfalls 9

Contacts 11

Contents

Part IAs the balance of world trade shifts to RGMs, the nature of taxation also shiftsTrade in all directions

Indirect taxes on the rise

consumption taxes to more comprehensive

in the enforcement landscape is due to a

do deploy modern computer systems to store vast amounts of taxpayer data and

business outcomes, speed up deliveries

2 Managing indirect taxes in rapid-growth markets Executive summary

Five global indirect tax trends: how do they play out in the RGMs?

VAT and GST rates are increasing

Excise duties are on the rise again

Free trade reduces customs but confronts protectionism

Tax administrations are focusing on compliance and enforcement

123

3Managing indirect taxes in rapid-growth markets Executive summary

Part IIIndirect tax issues and opportunities in rapid-growth markets

To the point:•

•

•

•

•

•

Trading with rapid-growth markets

Managing the impact of customs duties on tradeLevied to raise revenue or protect domestic

payable can often be used as the taxable

Corporate executives and EY professionals

importer of record; the pros and cons of

Some RGMs offer exemptions in free trade

enforced, and the trend is that compliance

companies should strive for transparency


Taxes on consumption

increase costs due to:

•

•

•

apply this type of consumption tax at the national, federal and

• Multiple import taxes

•

•

• time of importation and eventual recovery

•

•

•

•

countries, and complex supply chains are not accommodated by

Investing in rapid-growth markets

To the point:•

•

•

•

Free trade zones create indirect tax opportunities

formalistic approaches to enforcement and, more broadly, the

processes, standardized procedures and the use of appropriate

Tax and business incentives help companies decide where to invest


Statutory incentives, usually in the form of direct and indirect tax reductions, are available to all companies that satisfy criteria

Given the diversity and availability of incentives, therefore, many companies that invest in RGMs have a chance to improve their

Trends in incentives

Moving up the value chain

Companies can qualify for tax exemptions up to 100% for 10

enforcement, the Chinese authorities have announced the creation

A regional boost

Incentives aren’t gifts

Becoming a registered taxpayer of VAT or GST

VAT director responsible for Europe, Middle East and Africa


Operating in RGMs

To the point:•

•

•

•

•

•

•

sales made, but they are required to account for the tax, and at

Effective planning is essential

issues in RGMsCorporate tax executives in our survey of RGM operations

Complexity and rapid legislative change in RGMs

Withholding and recovery rules are more challenging

26%

9% 65%

Decreased Stayed the sameIncreased

Figure 2. Risk of VAT/GST penalties in 46 countries surveyed


Multinational compliance

Companies need a more systematic approach to customs and international trade

Customs and transfer pricing

to produce a product, many subsidiaries of one company trade

The arm’s length principle: good in theory, tricky in practice


Part IIIEffective management: seizing opportunities and avoiding pitfalls

To the point:•

•

•

•control and detailed local requirements to meet their multiple

•include:

•

•

•

•

•

of indirect taxes and incentives to avoid unnecessary costs and


Managing VAT/GST and customs

• Identify and quantify risks and opportunities in cross-border indirect taxation.

• Adopt effective controls and be alert to change in the market. Companies need standardized procedures and internal controls

• Designate management responsibilities and communicate across the organization.executive has the ability to reach into many corporate

• Get involved at the planning stage.

• Maximize internal and external resources.

• Use local knowledge. Some RGMs are so idiosyncratic in their

• Use technology.

Managing grants and incentives

•

•

• Involve incentives specialists: potential pitfalls in the incentives

•

Create partnerships and start the journey

VAT director responsible for Africa and the Middle East


ContactsLeaders

Global Director — Indirect Tax

Philip Robinson

Americas

Jeffrey N. Saviano

Jean-Hugues Chabot

Robert Smith

Europe, Middle East, India and Africa (EMEIA)

Gijsbert Bulk

Customs and International Trade

William M. Methenitis

Neil Byrne

Global Compliance

Geert Vandenplas

Robin Maxwell

Jackie Hubbard

Aaron Bromley

Gino Dossche

Incentives

Karen Hensley-Chelstowska

Robin Parsons

Christine Oates

Sonja Vancrayenest


Country VAT contact Email Telephone

Argentina Gustavo Scravaglieri

Brazil Jefferson Sanches

Chile Alicia Dominguez

China and Hong Kong Robert Smith

Colombia Aleksan Oundjian

Czech Republic Jan Capek

Stanislav Kryl

Egypt Sherif Al-Kilany

Ghana Wilfred Okine

India Harishanker Subramaniam

Indonesia Iman Santoso

Kazakhstan Zhanna Tamenova

South Korea Kyung Tae Ko

Scott Fife

Malaysia Aaron Bromley

Mexico Jose Olmedo

Nigeria Abasss Adeniji

Poland Dorota Pokrop

Radoslaw Szczech

Qatar Garrett Grennan

Russia Victor Borodin

Vitaly Yanovskiy

Saudi Arabia Garrett Grennan

South Africa Leon Oosthuizen

Thailand William Chea

Turkey Sedat Tasdemir

Cansu Yagci

Ukraine Vladimir Kotenko

United Arab Emirates Garrett Grennan

Vietnam Huong Vu


Country Customs contact Email Telephone

Argentina Sergio Stepanenko

Brazil Frank de Meijer

Chile Alicia Dominguez

China and Hong Kong Robert Smith

Colombia Gustavo Lorenzo

Czech Republic Stanislav Kryl

Egypt Sherif El-Kilany

Ghana Issac Sarpong

India Harishanker Subramaniam

Indonesia Ary Sutoto

Kazakhstan Zhanna Tamenova

South Korea Scott Fife

Malaysia Siok Kiat Koh

Mexico Rocio Mejia

Nigeria Abasss Adeniji

Poland Radoslaw Szczech

Qatar Garrett Grennan

Russia Yuriy Volkov

Saudi Arabia Garrett Grennan

South Africa Kayn Woolmer

Thailand William Chea

Turkey Sercan Bahadir

Ukraine Eduard Zlydennyy

United Arab Emirates Garrett Grennan


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Managing indirect taxes in rapid-growth markets ...€¦ · Introduction Since 2008, many developed economies `Yn] k]]f ÖYl gj f]_Ylan] _jgol` jYl]k& Multinational businesses have